Displaying items by tag: Legislation

Thursday, 06 May 2010 15:25

Next Up In The Spotlight - Italy, Again

As Greece, and Portugal, and recently even Spain bask in the spotlight of the bond vigilantes, I want to remind my subscribers to be prepared for Italy's turn to dance. Subscribers should reference Italy public finances projection Italy public finances projection 2010-03-22 10:47:41 588.19 Kb for the skinny on Italy's "realistic" prospects, and
File Icon Italian Banking Macro-Fundamental Discussion Note for a list prospective candidates to monetize this view in the banking industry. As of the last time I checked, the market hasn't hammered them yet... Complacency???

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Spain is due to hit the capital markets tomorrow. This is far from an opportune time: Spain's Borrowing Costs to Rise at Debt Sale as Zapatero Confronts `Abyss'

May 5 (Bloomberg) -- Spain’s borrowing costs may climb tomorrow at the country’s first debt sale since its credit rating was cut last week on concern the fiscal crisis pummeling Greek bonds will spread to fellow euro-region countries.

The Treasury may sell as much as 3 billion euros ($3.89 billion) of five-year notes to yield 3.34 percent, according to the median estimate of seven analysts and investors in a Bloomberg News survey. The yield was 2.84 percent when Spain auctioned 4.5 billion euros of the same securities on March 4...

Standard & Poor’s lowered its ranking for Spanish debt one step to AA on April 28, saying more downgrades are possible if the government’s “budgetary position underperforms to a greater extent than we currently anticipate.” Spain, which has the euro-region’s third-largest deficit, has pledged to reduce it to within the EU limit of 3 percent of gross domestic product in 2013, from 11.2 percent last year.

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Anybody who has been following for the last fiscal quarter or so (or has seen my Spanish bank work in 2009) knows that I believe that the EMU as it stood in 2009 would probably be non-existent by the end of 2010. All of the pundits who proclaimed that the European debt crisis was over with the mere declaration that Greece may receive some additional debt either were abjectly lying or truly didn't understand the gravity of the situation. To be honest, there are a lot (and I mean a whole lot) of data points, angles and contingencies to grasp thus it is not necessarily easy. Then again, isn't that what these market professionals get paid for.

Very early in the year, I virtually guaranteed that the Greek banks would fall, or at least have to be rescued (a 2nd time) before they fell. I practically promised it. In the news today...

Lagarde to discuss Greece support with banks: French Finance Minister Christine Lagarde will meet with bank leaders on Wednesday to discuss how its banks could participate in the Greek rescue package. Lagarde told the French parliament the country's banks will reiterate their support for the rescue process on Wednesday but she said tomorrow's meeting could lead to them taking on a more active role, along the lines of what German banks have done. French banks have so far not been asked by the government to participate directly in the Greek rescue package, two sources in France's banking sector said earlier on Tuesday. They have only been asked to maintain their exposure to Greece and have agreed to do this, the sources said. "Nothing beyond this has been requested by the government," one of the sources told Reuters. France has overall the highest exposure to Greek debt, with about $75.2 billion worth of assets in total, according to Bank of International data as at end-2009. Germany's top banks and insurers offered support on Tuesday mainly by keeping open credit lines to banks and by agreeing not to sell Greek bonds for the duration of a wider IMF-led bailout. Germany's Finance Minister Wolfgang Schaeuble said that German financial firms had agreed to buy bonds issued by state controlled bank KfW as a way to help finance the bailout. Deutsche Bank Chief Executive Josef Ackermann said it was important to extinguish the fire in Greece and pledged to help the country. Ackermann is helping to coordinate efforts by the private sector to support the Greek rescue package.

I suggest one references my post, How Greece Killed Its Own Banks!.

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Thursday, 29 April 2010 08:59

Beware of the Potential Irish Ponzi Scheme!

I have updated the latest Ireland research (released yesterday) and urge all to review the additions, as well as our overview of Ireland's fiscal difficulties:

We fear Ireland is on the verge of considering a massive Ponzi Scheme, if which avoided, will possibly result in a fiscal deficit approaching 20%, dwarfing the beleaguered Greece by several leagues.

Non-subscribers should reference Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter?, for the underlying premise of this in depth article described the upcoming situations with prescience.

Sovereign Risk Alpha: The Banks Are Bigger Than Many of the Sovereigns

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The Pan-European Sovereign Debt Dominoes start to fall "precisely" as anticipated...

From the Wall Street Journal:

Standard & Poor’s downgraded Spain’s long-term credit-rating to double-A with a negative outlook just one day after roiling global markets with downgrades for both Greece and Portugal.

“We now believe that the Spanish economy’s shift away from credit-fueled economic growth is likely to result in a more protracted period of sluggish activity than we previously assumed,” S&P credit analyst Marko Mrsnik said.

The move sent the euro to a fresh one-year low against the dollar of $1.3129; the 16-nation currency had briefly bounced higher as fears about Greek debt contagion eased. Spain’s IBEX index extended earlier losses, oil prices fell and U.S. stocks briefly turned negative.

This follows a downgrade of Portgual and Greece (to one of junk). The Actionable Intelligence Note of last week was quite timely. Up until a few days ago the options on many of these banks were quite cheap, on relative basis (even the Greek banks, at least on a relative basis though IV was high). Notice the explosion in both implied volatility and intrinsic value leading to a 100% to 200% gain...

Banco Santandar since research

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It would pay to review all of the relevant European bank research. The market seems to have realized the perilous linkages throughout the EU and is taking many (if not all) of the researched banks down. This research came out early enough for all subscribers to have been able to take advantage of it. Of particular note should be:

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As was literally guaranteed by the BoomBustBlog analysis, Greece is well on its way to default, or at least the acceptance of significant aid in an (probably futile) attempt to avoid default. For a refresher, see Greek Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on Fire!. Subscribers should reference the Greece Public Finances Projections. Of particular note is how accurate we have been in forecasting the nonsensical optimism embedded in the Greek Government's economic numbers, see Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!. Now, let's peruse the news of the morning...

In Bloomberg: Greece, Ireland Lead Euro-Area Budget Deficit Widening to Double EU Limit

April 22 (Bloomberg) -- The euro area’s budget deficit widened to more than double the European Union’s 3 percent limit in 2009, led by Greece and Ireland. I explicitly warned that these two countries were at the top of the risk chain throughout the year, culminated with a forensic report on Ireland. See Many Institutions Believe Ireland To Be A Model of Austerity Implementation But the Facts Beg to Differ! Subscribers should reference Ireland public finances projections. Ireland is in a particularly precarious position, potentially more so that Greece!

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The total budget gap for the 16-nation euro region widened to 6.3 percent of gross domestic product last year, the biggest since the introduction of the euro in 1999, from 2 percent in 2008, the EU’s Luxembourg-based statistics office said today. At 14.3 percent of GDP, Ireland had the largest shortfall, while Greece’s deficit was 13.6 percent. I'm not going to say I told you so!

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I know I'll raise my hand to the aforementioned question. The issue is, as I huffed and puffed about how overvalued GS is, particularly considering the amount of risk that it faced, I got a lot of blow back. The same blow back I got in early 2008 when I shorted GS from $180 to $75 (see Reggie Middleton on Risk, Reward and Reputations on the Street: the Goldman Sachs Forensic Analysis). Well, I guess we can all see the risk that I was referring to, right???

When the Patina Fades... The Rise and Fall of Goldman Sachs??? Tuesday, 16 March 2010

I have warned my readers about following myths and legends versus reality and facts several times in the past, particularly as it applies to Goldman Sachs and what I have coined "Name Brand Investing". Very recent developments from Senator Kaufman of Delaware will be putting the spit-shined patina of Wall Street's most powerful bank to the test. Here is a link to the speech that the esteemed Senator from Delaware (yes, the most corporate friendly state in this country). A few excerpts to liven up your morning...

Reggie Middleton vs Goldman Sachs, Round 1Tuesday, 08 December 2009 and Reggie Middleton vs Goldman Sachs, Round 2 Sunday, 31 January 2010

On December 8th of last year, I penned "Reggie Middleton vs Goldman Sachs, Round 1"wherein I challenged all to take a critical look at exactly how much money was lost by Goldman Sachs' clients. Well, here comes round 2, which is directed at Goldman (over)valuation.

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Here is another smattering of news from the weekend past, as well as our take on it and a decent dose of realistic analysis to cast a light on the real issues at hand...

Beijing Reports a Trade Deficit: BusinessWeek

  • China reported its first trade deficit in over 70 months as the prices of raw materials imports climbed
  • Analysts are stating that a stronger Yuan is needed to deter increasing domestic inflation
  • China has the impossible task of balancing an ever increasing asset price bubble with US demands for a revalued Yuan in order to fuel President Obama's manufacturing jobs utopia
  • Subscribers should reference File Icon China Macro Discussion 2-4-10 (Global Macro, Trades & Strategy)

And speaking of Beijing,,, China's Economic Growth Accelerates to 11.9%, May Prompt End of Yuan Peg - The Overheating has arrived???

ZeroHedge ran an interesting article yesterday, IMF Prepares For Global Cataclysm, Expands Backup Rescue Facility By Half A Trillion For "Contribution To Global Financial Stability", stating that the IMF will surcharge larger developed countries to raise an enormous amount of money for what apparently is preparation for a massive increase in default risk throughout the world. One of the countries in line for a significant charge is Ireland. This is interesting, for it plays directly into the Pan-European Sovereign Debt Crisis theory that we have been working for all of 2010. It is our belief that the very real threat of defaults will reverberate throughout a material portion of Europe. Even countries that are supposed to be on the right track, are in reality, skating the brink of insolvency. A forensic look of Ireland brings this thesis into focus.

We have performed a cursory overview of the risks inherent in Ireland though previous "preview" posts: Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe and Reggie Middleton on the Irish Macro Outlook. For the most part, Ireland has considerable embedded risk through both foreign claims on troubled countries (ex. PIIGS) and significant bank NPAs as a percent of its GDP.

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Below is an excerpt from our recent forensic Ireland analysis. Subsccribers, please download the most recent report here:File Icon Ireland public finances projections_040710:

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